Barnett disputes iron ore strategy

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 19 Nov 2014   Posted by admin


WA Premier Colin Barnett has accused state’s major iron ore producers of flooding the market, forcing prices down and squeezing out higher-cost producers.
In a focused attack on BHP Billiton and Rio Tinto, Mr Barnett warned he would “hate” to raise the state royalty rates, telling the companies to “remember who your landlord is”.

WA’s financial stability, which is highly dependent on the iron ore industry, has become increasingly troubled across 2014 as the commodity’s price dropped nearly 40 per cent since
January.

“The iron ore industry and iron ore royalties have become critical to the state’s finances,” Mr Barnett said. “Normal business logic… would suggest that if we are selling a product
into a market and the price is falling at a very fast rate, the normal commercial reaction would be to cut back on supply into that industry. The quantity supplied would normally fall.

“When we get a very sharp and large fall in the price of 40 per cent … I find it a strange policy – indeed, a flawed policy – that the major iron ore producers would be putting more
and more product into a declining, soft market.

“That is a flawed policy and I think it will be a failed policy – no doubt about it.”

Mr Barnett said Rio and BHP were known for behind-the-scenes liaisons, but denied the behaviour was “collusive”.

“This is the third iteration of some sort of arrangement between BHP Billiton and Rio Tinto and maybe other iron ore producers. The first happened in the late 1990s… when they proposed a merger. The second iteration was… in 2009 when they proposed to merge their iron ore operations in a physical sense in the Pilbara.

“Now we have another variation. I do not think it is healthy for the iron ore industry. I do not think it is a good policy for shareholders or for those companies, and it certainly damages WA.”

WA Mines and Petroleum minister Bill Marmion backed up the Premier’s sentiments.
“The state owns the minerals, and we obviously have some duty of care to the people of WA to make sure that we get good value for them,” Mr Marmion said.

“I think the Premier is perfectly right to make the comment that we have to be careful about what price we, as WA, get for our commodities.”
BHP and Rio both denied consorting together, with BHP chief executive Andrew Mackenzie declaring Mr Barnett’s statements were “completely wrong”.

“It’s an interesting one. Normally people collude to drive prices up,” Mr Mackenzie said.

“We are behaving as a rational economic enterprise. We have the opportunity to substantially increase our iron ore production through productivity and getting more out of the
existing infrastructure.

“In doing that we are winning huge benefits for shareholders.” State Opposition leader Mark McGowan said Mr Barnett was bringing WA into disrepute while working to shift blame away from the financial mess he had created.

“When the Premier of WA says these things, it reverberates around the world. What he’s done has hurt our exporters and hurt WA,” Mr McGowan stated. “Last month Mr Barnett said iron ore companies needed to increase production, yet this month he’s saying they should cut it back. He is on record saying the increase in production would offset the decline in price.

“He’s all over the place and his position appears to change from one day to the next. And now he is attacking the companies for doing exactly what he said they should do. “These are the biggest employers in WA and they generate enormous revenue for the state. If they don’t produce the iron ore, then overseas companies will.”